Why do high-end prostitutes make so much money?

Have I mentioned that Eric Barker is awesome? Many of you should be reading his blog. Yesterday he brought us this account, with the source paper here:

Edlund and Korn [2002] (EK) proposed that prostitutes are well paid and that the wage premium reflects foregone marriage market opportunities. However, studies of street prostitution in the U.S. have revealed only modest wages and considerable risks of disease and violence, casting doubt on EK’s premise of an unexplained wage premium. In this paper, we present evidence from high-end prostitution, the so called escort market, a market that is, if not entirely safe, notably safer than street prostitution. Analyzing wage information on more than 40,000 escorts in the U.S. and Canada collected from a web site, we find strong support for EK. First, escorts in the sample earn high wages, on average $280/hour. Second, while looks decline monotonically with age, wages follow a hump-shaped pattern, with a peak in the 26-30 age bracket, which coincides with the most intensive marriage ages for women in the U.S. Third, the age-wage profile is significantly flatter, and prices are lower (5%), despite slightly better escort characteristics, in cities that rank high in terms of conferences, suggesting that servicing men in transit is associated with less stigma. Fourth, this hump in the age-wage profile is absent among escorts for whom the marriage market penalty is lower or absent: escorts who do not provide sex and transsexuals.

Excellent, but I do find some problems in that account. As for the fourth point, who ever said: "Don't worry ma, she's a sweet girl, she's only serviced the conference trade!"? Maybe, in "crossroads" cities, sexual mores are looser in some other way, as a greater supply of the free product than you will find in Topeka. As for the third point, can't it simply mean that conference men (even assuming that is indeed the relevant characteristic of the city) get really drunk and don't care much about the age of the woman? On the second point, isn't that "hump-shaped pattern" probably driven by demand rather than supply? If you wish to claim it is driven by supply, you need to postulate that women in the 26-30 bracket are mainly competing against each other, rather than say 20-25 year-olds. Is that true?

Point two has a much simpler explanation. Ability to command high fees isn’t solely determined by looks; people skills, professional skills, salesmanship, charisma, and assertiveness are factors, and they usually come with age and experience. Average wages for actresses probably peak at a later age as well, for some of the same reasons.

nelsonalJanuary 25, 2010 at 7:19 am

Um I think you should look at Franklin for the answer to your hump question.

i. Because as they have more Knowledge of the World and their Minds are better stor’d with Observations, their Conversation is more improving and more lastingly agreable.

2. Because when Women cease to be handsome, they study to be good. To maintain their Influence over Men, they supply the Diminution of Beauty by an Augmentation of Utility. They learn to do a 1000 Services small and great, and are the most tender and useful of all Friends when you are sick. Thus they continue amiable. And hence there is hardly such a thing to be found as an old Woman who is not a good Woman.

Not all apply, but most of his points do. The hump represents the end of the age where they still look young and fresh to their clients but have learned a few skills in the bedroom that the younger ones might not have needed.

MillianJanuary 25, 2010 at 8:15 am

I’m confused by Tyler’s enumeration. The “conference” point might also be better explained with some demand-side analysis. Perhaps in conference cities, men are more risk-averse than escorts, so they are willing to pay less for escorts about whom they have little information, whereas in their home cities, they have more information, so those who select into the high-end prostitution market have more money on average. But this is just a story, I’m sure we can make up stories for other arguments too.

SamJanuary 25, 2010 at 9:17 am

If you go reductio ad absurdum with the “looks decline monotonically with age” it gets disturbing.

CBrintonJanuary 25, 2010 at 10:04 am

Maybe I’m unduly cynical, but how solid are these reported numbers? It seems to me that everyone involved (both prostitutes and customers) has some incentives to over-report the amounts they either pay or are paid. There’s more prestige in paying $1000 a night for a callgirl than $200, and likewise more in receiving that much.

David HechtJanuary 25, 2010 at 10:27 am

Surely the high-end escort market is another example of the type of thing Gary Becker and others have written about? That you can command a disproportionate premium if you are at the top end of the market in athletics, the arts, or some other similar enterprise?

“As for the fourth point, who ever said: “Don’t worry ma, she’s a sweet girl, she’s only serviced the conference trade!”? Maybe, in “crossroads” cities, sexual mores are looser in some other way, as a greater supply of the free product than you will find in Topeka.”

Slocum has part of it I think, in that it’s easier to be servicing out of towners and keep it quiet.

Think back to Gary Beckers work on this and the diminution of social capital by being on the game. It’s a reputation thing: it’s not the being a tart that causes the problem, it’s the people knowing you’ve been a tart that is.

So, those who move in order to go on hte game: well, where do you move to? Where the traffic is: the convention cities.

LaurenJanuary 25, 2010 at 5:06 pm

Wow, way to alienate your female readership. Women are commodities, whose worth is solely dependent on how attractive (heterosexual) men find her.

kJanuary 25, 2010 at 7:55 pm

The men that hire escorts want to signal their riches. So the more they pay the better,

RicardoJanuary 25, 2010 at 9:56 pm

On the 26-30 bracket, two other reasons why they might earn more:

1. Women this age may simply be more experienced. A confident 26-year-old may appeal to men more than a shy 23-year-old.

2. Assuming many of their customers are older men, it’s embarrassing if you are a middle-aged man to be seen in public with a 21-year-old girl. Everyone will talk behind your back. If she is in her late 20s, though, that’s OK. The guilt factor may be less as well.

AaronJanuary 26, 2010 at 11:28 am

I’d like to read a paper that explains why economists are so fascinated by hookers. From slutsky boxes to doing it with models, the field of econ is full of innuendo.

coatue4January 29, 2010 at 5:12 pm

My guess (not from personal experience) is that since high-end escorts may also often accompany their clients to social events or public places like restaurants, a slightly older, better educated, and more emotionally mature woman might be preferred over a younger one (i.e., 28 over 22) because it would be less obvious to others that she was an escort. Particularly if the client was older.

As for the conference issue, my guess is that an escort who is discreet about her career has less of a chance of accidentally running into a client outside of their dates (and having someone find out what she does) if he lives out of town.

The main reason why High Class Escorts are paid better can be found in the psychological nature of men.
High class escorts take high class prices, this gives a customer a better feeling because of those higher rates there are less other customers than it would be in the opposite case.
These kind of business men don’t like to share their companion with too many other clients.